NPL bulge blamed on too many banks

Bankers tell BIBM conference

The presence of too many banks and the resultant competition are some of the main reasons for the rising amount of non-performing loan in the country, experts have said.

They also said that state-owned banks are lagging behind their private counterparts when it comes to efficiency.

The views came on Wednesday during the first day of the annual banking conference organised by Bangladesh Institute of Bank Management (BIBM) in the city.

"For an economy of US$ 274 billion, there are too many banks in the country and it has become very much fragmented," said Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh.

"Everybody is running after large players. Meanwhile, the large borrowers are using this money for fixed asset purpose, which is not giving return," Mr Rahman said, referring to the rising amount of NPL in the banking sector.

The comments come at a time when the amount of troubled loans keeps swelling in the country despite growing concerns over its negative impact on the economy.

The total amount of NPL swelled to Tk. 893.40 billion (89,340 crore) in June 2018, the central bank figures show. The actual volume is even higher when rescheduled and written-off amounts are taken into account.

The NPL volume now accounts for 10.41 per cent of the total loans given by the banking sector, up from 9.31 per cent in December last year.

Eight state-owned banks together comprise Tk. 389.75 billion of this amount while 40 private commercial banks have a total share of Tk. 480.93 billion, the BB data showed.

Reflecting on this, the ABB chairman blamed it on the unusually high number of banks and the unhealthy competition among them.

"We, the banks, are giving money but we do not monitor how the money is being used," the ABB chief said.

"We need to be in close touch with customers. Until and unless we keep in touch with customers, we do not know what is happening," said Mr Rahman, CEO of Dhaka Bank.

Apart from unhealthy competition, experts at the event blamed the improper loan approval process, incomplete documentation, aggressive banking and political pressure as major reasons for the increase in nonperforming loans.

"Credit is often extended under pressure without the approval of competent authority or without any logical basis," said Mohammad Omar Faruk of Bank Asia while presenting a keynote paper.

"In many cases, political pressure leads to sanctioning of loans that are not eligible while aggressive, unscrupulous and target-oriented banking also indirectly increases NPL," he added.

To address the situation, experts cited the examples of China and Malaysia, which have been able to reduce their ratio of nonperforming loan drastically.

"China, for example, has established four asset management companies to help the big four state- owned banks to strip of NPL," Mr Faruk said.

"China's Supreme Court has blacklisted 6.73 million defaulters and have blacklisted them from buying real estates, obtaining land from the government, travelling by planes, applying for loans and credit cards and even getting promoted," he added.

Experts noted that state-owned commercial banks are less-efficient than their private rivals.

"State-owned banks and Islamic banks need to improve their scale while conventional commercial banks need to improve their technical efficiency," said Md. Golzare Nabi, Deputy General Manager of Bangladesh Bank.

In the inaugural session, experts provided the last year's overview of the banking activities.

"Credit risk and default loan scenario in trade services followed the same trend of overall NPL scenario of the country," Chowdhury said in his inaugural keynote.

"Incidences of trade- based money laundering continued as a growing concern for the policy makers and the central bank because of the lack of appropriate enforcement of available regulations," he added.

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